One Report - Two Announcements
The report that was recently issued by the IMF commented, by and large, favourably on the progress made by NZ financial services industry since the original assessment in 2003 that stimulated the move towards aligning NZ with international financial market standards.
The 2017 report noted the introduction of legislative measures, supporting regulatory processes, and the establishment and development of supervision integral and positive aspects of the NZ market.
However, to temper all the self-congratulatory statements issued by various Government entities, there were pointed references made to the relatively unattended areas around insurance and the lack of resources applied to addressing conduct and practices in the insurance industry. This was not specific to Fire & General or to Life & Health, but to the insurance industry generally.
It has long been a bone of contention that RBNZ only oversees capital management and solvency issues relating to licensees, and that while the Government has been diligent in addressing intermediary conduct and behaviour, no such corresponding framework has been contemplated for product providers. In essence, the practices of insurance companies are self-regulated, and while many are familiar with the activities of the FMA with regard to adviser misconduct, insurance product providers operate in an environment with no co-ordinated legislative or regulatory framework equivalent to the FAA 2008 – or the revised version proposed in the recent Exposure Draft.
This is particularly annoying - acknowledged by many non-product provider commentators - as many aspects that trouble impacted stakeholders originate from product providers in their never-ending quest for market share.
This leads neatly into the first of the two announcements and goes directly to the IMF recommendation that more attention is paid to the regulation of the insurance industry.
The Minister recently announced the appointments to the Code of Conduct Committee, charged with providing a governing document to cover all advisers by August 2018.
Not only is there not a practising adviser on the Committee, there is not one individual with the slightest knowledge of personal or commercial risk asset protection, i.e. insurance.
So the platitudes and schmooze from the politicians indicating support for the IMF findings are immediately abandoned in the face of a practical opportunity to address the IMF concerns.
The statistics recently published by the FSC indicate that Kiwis are paying $2.42 billion in annual premiums, yet the Government has decided that it is not suitable to have industry-experienced resources allocated to the development of a suitable Code of Conduct governing the behaviour of the largest distribution channel involved in creating this revenue.
In complete rejection of the IMF recommendations, the Code Committee consists of individuals – competent and able in their own areas, I’m sure – who have no first-hand professional experience in a complex industry that provides for the financial security of consumers in the face of natural disasters, illness, or death.
Eye-watering, breath-taking – and irresponsible.
The second announcement that caught my eye was the appointment of the Transitional Board for the nascent Financial Advice New Zealand body – hereby and legally abbreviated to FinAdvNZ. At first glance, it appeared that the same faces would be in the same places – but with a different unified acronym.
However, digging a little deeper, it appears that once this transition period is over, fresh faces – and independent of the old organisational ties – will be elected based on the required governance of the constitution, charter, etc., of the new entity.
While some commentators have expressed concerns over the time-span involved (with which I don’t necessarily disagree) there are inevitably complexities that occur in such situations – as the Brits are about to find out – that take time to resolve.
The will to address such complexities exists strongly from my discussions with those involved, and the continuing progress and consensus, while frustrating to those not involved, is preferable to a crash-bang approach that risks alienating sections of the existing, and potential, support base.
It’s important that these folks get it right as it’s evident from the Government’s attitude towards advice and independent advisers, the alternative of fragmented advocacy and representation in the face of the ever-increasing burden of compliance will leave advisers exposed and vulnerable.
I say we should look beyond the initial establishment/transition period and look to future where the adviser’s voice can be heard and not ignored as has clearly been the case in the past, as in the announcement of those appointed to the Code Committee, and as in the abject dismissal of the IMF recommendations.
A multitude of disparate views, opinions, and agendas merely serves to confuse the issues, drive the Authorities toward arbitrary and potentially adverse conclusions, and while the competing pressures driving the various stakeholder are unlikely ever to converge, advisers can present their interests in a cogent, collaborative, and consensual fashion.
The effort may prove futile should future governments choose to follow the U.K. or Australian routes, but it is 100% cast-iron guaranteed that if advisers do not collectively make articulate and constructive representation, the future is in the hands of politicians who care not one iota for the existence or extinction of the independent financial advisory industry.